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Will your gift aid donations create a tax bill?

Apr 30, 2019

The Gift Aid scheme is available to all UK taxpayers. The charity or Community Amateur Sports Clubs (CASC) concerned can take a taxpayer’s donation and provided all the qualifying conditions are met, can reclaim the basic rate tax allowing for an extra 25p of tax relief on every pound donated to charity.

Higher rate and additional rate taxpayers are eligible to claim tax relief on the difference between the basic rate and their highest rate of tax. This can be actioned through their Self Assessment tax return or by asking HMRC to amend their tax code.

For example:

If a taxpayer donates £500 to charity, the total value of the donation to the charity is £625. The taxpayer can claim additional tax back of:

£125 if they pay tax at 40% (£625 × 20%),

£156.25 if they pay tax at 45% (£625 × 20%) plus (£625 × 5%).

Beware this potential tax trap

However, an awkward situation can arise if you gift too much to charity as one of the conditions of gaining tax relief is that you must have paid enough tax (or any tax) in the relevant tax year. The rules state that your donations will qualify for tax relief as long as they are not more than four times what you have paid in tax in that tax year. If you have claimed more tax relief than you are entitled to you will need to notify the charity and pay back any excess tax relief to HMRC.